It seems the blowback from the breakup between Turkey and its southern neighbor Syria over President Bashar al-Assad's deadly crackdown on the opposition, which craves democracy, fundamental rights and the rule of law, has so far not had much impact on Turkey's overall trade, apart from a dramatic drop in the volume of bilateral trade. The Turkish Exporters Assembly (TİM) announced on Friday that export rates increased by 10.3 percent in the five months leading up to May and by 7.3 percent in May alone when compared to the same periods of last year, going against the expectations of a fall from both Syrian and eurozone crises.
This shows that exports are on the rise despite the blockage in Syria, which has been a gateway for Turkish exports to the Middle East and Gulf region. The fact that Turkish exports to the Middle East jumped by 27 percent in May when compared to the same period of last year is a testament that the deteriorating relations of Turkey with the brutal Syrian regime have not made a dent to Turkish total trade numbers while taking a huge chunk out of the Syrian economy.
I suppose we have to be thankful to our Egyptian brothers for the lifeline they threw at a critical moment by facilitating the roll-on/roll-off (Ro-Ro) ferry line from Turkey's port of Mersin on the Mediterranean in the south to Port Said in northeast Egypt, just north of the Suez Canal, and then from there to the port city of Duba, Saudi Arabia, on the northern Red Sea coastline. The agreement was signed in April between Turkish Economy Minister Zafer Çağlayan and Egyptian Minister of Transport Galal Moustafa Saeed. Since then Turkish trucks have been rolling on and off the ferries in Egypt en route to Middle Eastern and Gulf markets as well as to African markets.
Though the Ro-Ro option may be a costly route for destinations like Jordan, it is nevertheless a safer route for truckers to take. The Turkish government is subsidizing the shipments to offset the cost for the time being. It was not unexpected that Turkey's announced sanctions in December 2011 would take a huge toll on the trade volume between the two countries. However, it looks like Turkey easily replaced the lost revenue from Syria by expanding its trade with other countries. Unfortunately, the same can't be said for Syria, which has been facing severe shortages in meeting the country's needs. If you add the loss of Turkish investments in Syria, which have been nearly $1 billion in recent years, the situation looks even bleaker for Syria.
The drop in bilateral trade should not come as a surprise to anybody. All political decisions have positive or negative repercussions on the economy and Turkish policy makers were very well aware of that. According to the Turkish Statistics Institute (TurkStat), the trade volume in the first quarter of 2012 took a dive, with a 63 percent drop from $528 million last year to $194 million this year. The overall trade revenue in 2011 was almost $2 billion, a drop of 13 percent on 2010 from $2.3 billion, heavily favoring Turkey. In the first quarter, Turkish exports to Syria dropped by 57 percent while imports from Syria fell by 83 percent.
As for the border provinces in Turkey's south, we have not seen a major impact from the Syrian crisis so far, at least on the export figures recorded in the south and eastern regions. The basic reason for that is that Syria has never been a major export destination for the border provinces. Iraq is the country to which these regions export a variety of goods the most, accounting for 43 percent of its exports in 2010 and 47 percent in 2011. Iran comes in second with 6.5 percent and 6.9 percent over the same time period. Syria was the third country in 2010, taking 3.9 percent of exports made from the south and eastern Anatolia regions. It was replaced by Saudi Arabia in 2011 when the figure for Syria dropped to 2.5 percent.
Looking at the situation in real numbers may shed a better light on the situation. In 2011, Syria accounted for a loss of $35 million in export revenue from these regions while, in contrast, Iraq provided $1.2 billion in additional revenue to these regions. Therefore the impact of Syria on the trade carried out by the border provinces was not that big. In terms of imports from Syria, the numbers are worse than the export figures. In 2011, Syria's share in the region's imports dropped to 1.1 percent from 1.8 percent a year earlier, pushing Syria to 23rd place from 15th in the order of countries that export most to these regions of Turkey.
The biggest impact seems to have been felt by small and medium-sized enterprises (SMEs) operating mostly in the provincial capitals of the border provinces. Some of these SMEs have been relying for part of their income on daily tourist traffic from Syria, using the visa-free regime. Though the government has been working to get a reliable estimate for some time now of the negative impact on SMEs, we need the compilation of figures from chambers of trade to get the estimate. If it is any indication, the change in the number of export and import companies may tell a partial story. In 2011, the number of firms exporting to Syria was 3,269, which dropped to 538 in the first two months of 2012. The number of Turkish firms importing from Syria was 644 in 2011, but dropped to 108 in the first two months of 2012. I suppose the bulk of these are SMEs.
The Turkish Ministry of Economy set up the Syria Watch Unit in October 2011 so that firms can inform the ministry of their difficulties with regard to trade with Syria. As of May 22, 145 Turkish firms had applied to this unit, reporting security and trade-related issues they faced with Syria. The problems firms suffer varied from difficulty in keeping production going in Syria due to the turmoil -- which causes security problems and skyrocketing costs -- to failure to collect the payments for the goods transferred to Syria. Transporters are the victims of the rising cost of transportation, with Syria having raised customs duties and doubled transit fees for Turkish trucks.
To cushion the adverse impact, the Ministry of Finance decided in March to allow firms that have suffered financial losses on account of the ongoing crisis in Syria to benefit from the “act of God” criteria regarding their tax payments. Their tax payments have been deferred until the trade situation returns to normal. The Ministry of Finance has also declared Syria a politically risky country, enabling firms that were supposed to make past years' tax payments in installments to defer the payments until the conditions under the “acts of God” criteria disappear.
Turkish Eximbank has also announced a set of measures to relieve Turkish contracting and construction companies doing business in Syria from the negative results of issues involving letters of credit extended to Syrian companies. As part of the Bridge Credit Program for Overseas Contractor Services, Eximbank has been providing loans and credit to Turkish companies. The bank also extended the term deadlines for credit repayments of short-term exports and transportation credit, giving Turkish companies breathing space.
In order to assess the full extent of the damage from Syria on the Turkish economy, we have to wait for the Ministry of Economy to finish its ongoing work in cooperation with TİM, the Turkish Contractors Association (TMB), the Foreign Economic Relations Board (DEİK) and the Syria Watch Unit. But so far, it is apparent that Turkey has been weathering the impact of the crisis in Syria relatively well from an economic point of view. The political and humanitarian perspective of the fallout from the Syrian crisis, however, is another story that deserves separate analysis.